Markets bounce back strongly

Marcus Padley, at Patersons Securities, joins Lateline Business to discuss the market's strong bounce back today.

Transcript

WHITNEY FITZSIMMONS: Well, as we said earlier the markets bounce back strongly today, and for his view on the day's trade I spoke to Marcus Padley at Patersons Securities.

MARCUS PADLEY, PATERSONS SECURITIES: Marcus Padley, welcome back to the program for 2010.

MARCUS PADLEY: Thanks.

WHITNEY FITZSIMMONS: Now, it was a surprise decision from the Reserve Bank to leave interest rates on hold. How much of an impact was there on the broader share market, and in particular financial shares?

MARCUS PADLEY: Well, the market was up 70 points before the decision came out in closed, up 81 points on the ASX 200. It didn't have a big impact. Financials were left behind, today was all about resources, and most of it happened before the RBA decision. And I think the markets worrying why the RBA has gone on a cautionary stance and the suggestion is that they are, perhaps, worrying about the second half of the year in Australian economic growth and the impact that Chinese tightening will have. And they would look silly being the only central bank raising interest rates at the moment if there was a slow down coming up in the second half of the year.

I think they have just stepped back, they can afford to do that, let the interest rate rises that have happened impact and see what happens from there. Either they are cautious about China or they are short, the Aussie dollar, I am not sure which.

MARCUS PADLEY: Yes, we have had an 8.7 per cent drop in the market in 14 trading days. We were on the ASX 200 looking at the 4,500 level, which has been seen as significant support level, and if we drop below that everyone would have thrown the baby out with the bath water. We have 4,524 yesterday and we bounced. It's uncanny how BHP Billiton went from top to bottom of trading range, bouncing on the support levels. There's enthusiasm out of momentum, rather than fundamental things, holding. The 4,500 support level seemed reasonably significant. That's all traders need for the moment.

WHITNEY FITZSIMMONS: You mentioned BHP Billiton. We saw strength in the resources sector - how encouraging were those figures on US manufacturing?

MARCUS PADLEY: The US manufacturing numbers were seen, the ISM manufacturing index was higher than expected, and that number was seen as an excuse for a rally on Wall Street. Really, I don't think that was driving resources so much as the falls that the market has had, and some remotely good economic news. Resources really have fallen the most since the top of the markets, some are down 20 to 30 per cent, in just 14 days. So it was the sector that was going to bounce the hardest, and because it's a sector hit the hardest. Some relief rally, I don't think it's necessarily the US manufacturing numbers.

WHITNEY FITZSIMMONS: Now, shares in Hills Industries surged by 13 per cent after the company released its profit results. Is that a sign of what else we'll see for the rest of the reporting season?

MARCUS PADLEY: Let's hope so. Up 13 per cent, on a set of results. We are coming into the result season. There's Newscorp and Tabcorp, Resmed this week. We have the major ones - Rio, BHP Billiton, Telstra, CBA, Cochlear, to name a few - coming up next week. We have had profit upgrades from Flight Centre, Computershare, CBA ahead of the results. Hills Industries results are good. Expectations are high. I would say, as usual with results season, all the good news comes out early on. It gets worse from there. Hopefully we'll get a good set of results from the majors next week.

WHITNEY FITZSIMMONS: Marcus Padley, thanks for joining us on the program.